As the outlook for Asia equities remains in construction, longer-term investors are in the ideal position to capitalize on the opportunities present in emerging markets.
Investors with an intermediate- to longer-term perspective will benefit from allocating to an emerging market, Asia, or China ETF while these funds are still trading at a discount. These regions are poised for continued growth as these economies are just starting to come out of COVID.
“While we anticipate a continuation of market volatility in the near term, we are excited by the opportunities developing throughout Asia,” Matthews Asia portfolio manager Yu Zhang wrote in an October insight. “Despite the headwinds witnessed through much of 2022, Asia’s multi-year structural growth story continues to unfold, particularly in emerging economies such as Vietnam.”
Zhang said China’s adoption of a more pragmatic approach to managing the pandemic, dovetailed with a more supportive environment for economic growth, will go far in reversing negative sentiment towards Chinese equities, particularly while valuations are suppressed.
“We remain constructive on the outlook for Asian equities but acknowledge that in the current risk-off environment selectivity remains key,” Zhang wrote. “Volatility in markets can be challenging but it can also present exceptional opportunities for those with dry powder to deploy and a long investment horizon. In our view, Asia equities today provide intriguing opportunities for investors.”
Matthews Asia launched three active ETFs in July offering exposure to different segments of the emerging markets asset class. The lineup includes the Matthews Emerging Markets Equity Active ETF (MEM), the Matthews Asia Innovators Active ETF (MINV), and the Matthews China Active ETF (MCH).
MEM invests in emerging market companies with perceived sustainable growth potential, capitalizing on consumption and innovation trends. The fund utilizes an all-cap, company-first approach, which emphasizes fundamental research over top-down country or sector allocation.
MINV, a high-conviction, concentrated equity portfolio, invests in innovative companies in Asia ex-Japan, capitalizing on the new economy and rising disposable income in the region. MINV is worth consideration for investors who want a more thematic and concentrated approach.
MCH is a high-conviction equity portfolio that seeks companies benefiting from China’s domestic consumption. MCH uses an all-cap fundamental GARP approach driven by proprietary research and combines long-term core holdings with more opportunistic ideas to provide consistency through cycles. MCH offers concentrated exposure to China but is more forward-thinking than indexes in terms of how it looks at very complex and large geography.